TWV Media

A Bet Worth Taking

Last month, the House of Common’s Culture, Media and Sport Select Committee issued a report entitled ‘The Gambling Act 2005: A bet worth taking?’ You’d be forgiven for missing it as it was hardly picked up at all by the media with the single exception of its call for local authorities to approve the creation of more casinos, which should be permitted to provide up to 20 high stakes machines (FOBT’s) while betting shops should be able to increase their number of FOBT’s, on which punters can place bets of £100 online, from the current limit of 4 per outlet. Notwithstanding that these were but two relatively small conclusions in a wide ranging view, it speaks more about the intolerance to any gambling from the likes of The Daily Mail than it does about any sensible discussion of the way for forward for gambling regulation in the UK.

And, undoubtedly, a sensible discussion needs to be had. The last Government got it about as wrong as it could, given that it had set out to raise new revenues from taxing the fast growing on-line industry, while showing the rest of the world the way to do it. The last Government talked about super casinos and job generation. This was to be a booming sector. However, as so often, the last government marched us up to the top of the hill and marched us down again. The tax rate was too high for operators to remain onshore, where most of them wanted to stay. The bureaucracy surrounding the planning criteria for the super casinos was sufficiently byzantine to deter even the keenest bidders. No new large casinos have been built since 2005, when the law was passed. Its uselessness as a piece of legislation yet again demonstrated the naivety of our political masters when it comes to commercial or behavioural matters. The Daily Mail saw it slightly differently. “Of the many low points of the last Labour government, one of the most contemptible was its effort to encourage the spread of casinos and internet betting, when families were already being ripped apart by gambling addiction. Indeed, it was only after a public outcry, led by The Daily Mail, that the then Culture Secretary watered down her plans for a free-for-all, ditching super casinos and setting up the Gambling Commission to regulate the industry”. Well, as Christine Keeler once said ‘they would say that, wouldn’t they’.

However, they have missed the point of debate. As also, it must be said, has the House of Commons Culture, Media and Sport Committee and the present Coalition Government. Firstly, it has to be decided what is the purpose of any new legislation. What is its aim and what is the best way to ensure that the aim is fulfilled. Secondly, they have to be both honest and realistic about what is decided. Until those steps have been put in place, we will continue to lurch from one legislative mess to another.

First up as an issue is the relationship between the DCMS and the Treasury. Since this is legislation designed solely to affect a revenue grab – players will not end up being better protected – the two must work hand in hand. As the Select Committee’s report states: “the failure of the DCMS to work with the Treasury to set remote gambling taxation at a level which online operators could remain within the UK and regulated by the Gambling Commission has led to almost every online operator moving offshore while most are still able to advertise and operate into the UK.” How incompetent is that? They could have got it right so easily not just by talking to the industry, which they went through the motions of doing, but actually listening to what it had to say. Indeed, this is one of the report’s recommendations; that the Treasury needs to work with “industry stakeholders to establish the correct level for online gambling taxation, taking into account the need to encourage companies to accept UK regulation and taxation and to discourage the formation of a grey market”, which, if established, would diminish player protection rather than enhance it.

This is clearly good sense since the separation of policy and tax, which a Joint Select Committee specifically warned against in 2004, is widely perceived to be the source of all the many concerns that have been raised about the operation of the Act. But we are going to need a lot more common sense along the way if there is to be a chance of a system that works for everybody (or nearly everybody) and which fulfils the policy aims of the Government. This is already looking unlikely. In his March budget this year, the Chancellor moved to introduce a point of consumption tax. The reason, he explained, was because 90% of online gambling consumed by UK citizens was now supplied from outside the UK and the remaining UK operations were under pressure to leave.

“This is clearly not fair” he goes on “and not a sensible way to support jobs in Britain. Se we intend to introduce a tax regime based on the place of consumption and, from this April, we will also introduce double taxation relief for remote gambling. These changes will create a more level playing field and protect jobs here”. This is specious. Given that, by his own admission, 90% of online gambling is already offshore – and, in most cases, reluctantly, given the expense and effort of having had to relocate – the truth is that the majority of jobs he is seeking to protect have already gone. And the proposed implementation of 15% point of consumption tax will render a significant number of the small to medium size operators financially unviable resulting in more, rather than less, job losses and less choice for the consumer. All across the spectrum if the UK gambling industry, there is mounting evidence that high taxes are restricting growth and discouraging investment. The various (and upward) changes in tax rates for gambling made in successive budgets have been cited as damaging to parts of the industry. In 2006, changes effected B2 machines; in 2007, casinos, and in 2008, bingo. According to Ladbrokes, profitability had “severely declined” since the Act, and that “far from encouraging economic progress, all indications suggest that the high levels of taxation and regulation have impeded growth”.

Bingo, still reeling from the effects of the smoking ban, still pays through the nose: 20% rather than the gaming duty of 15% that the online onshore industry currently pays. This makes no sense from a financial point of view and nor, more worryingly, from a consumer protection point of view. As the Gala Coral group stated “it is patiently unfair that the’ softest of all forms of gambling (Bingo) is charged the very highest base rate of Gross Profit Tax”. While Casinos which, as Rank put it, have the ‘highest degree of supervision and player protection’ are penalised – with higher gambling duty rates “in favour of those providing lower levels” With the increasing tendency of Government to try and social engineer through taxes, one would have thought they would rather have penalised the hard gambling rather than the soft.

However, the real danger stems from the Treasury’s assumptive ownership of the tax revenues they already receive, irrespective of their ‘fairness’, During the gathering of the evidence for the report, Chloe Smith , the Economic Secretary to the Treasury, argued that a reduction in bingo duty to, for example, 15%, would cost the Government around £25 to £30 million per annum. No evidence of an appreciation that less tax might lead greater to profit and therefore a higher return for the Treasury. Indeed, as Ernst & Young pointed out in a policy paper, a reduction in tax for bingo to 15% would lead, by their reckoning, to an increase in the overall tax take from the sector, resulting in a net benefit to the Treasury ‘of over £65 million over the period 2011-2014’.

However, tax revenues are only part of the Government’s financial conundrum. In this time of austerity, the Government unsurprisingly is looking for increased revenues. Equally unsurprisingly, they’ve looked at the growing and burgeoning online gaming industry, realised they are receiving practically nothing in comparison with, say, Italy and have decided that they want their ‘share’. However, to get their ‘share’, they are going to need to provide their own form of licences and regulation. For this to be effective, they will need to closely monitor all licensed operators and have the wherewithal, if necessary, to take effective action against those who break the law. And that, simply, is never going to happen.

Firstly, as the ‘House of Commons’ DCMS report, concludes, “given that most UK operators have located their online operations offshore, this enquiry has heard concerns regarding the expertise of The Gambling Commission to monitor effectively a much larger number of online licence holders under the proposed changes to the regulatory regime. The Commission will, therefore, need to bolster its capability to do so, from within existing resources, as supplemented by license income from the online operators it approves”. But will that be enough? Almost certainly not. Currently, the White List arrangements allows for all the regulation, inspection and so on to be done at no cost to the Treasury. Beefing up The Gambling Commission to levels of size and expertise that are fit for purpose at a time when they are being merged with The National Lottery Commission and at a time when there still exists no coherent Government policy for gambling, will come at a cost that will certainly carry with it a negative ROI, irrespective of what levels of the duty are applied. And, like the title of the report, I do not think that is a bet worth taking.